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Working Papers (1993), ESSEC Business School

Dynamic Asset Allocation in a Mean-variance Framework

BAJEUX-BESNAINOU I., PORTAIT Roland

The aim of this article is to analyze the portfolio strategies that are mean-variance efficient when continuous rebalancing is allowed between the current date (0) and the horizon (T). Under very general assumptions, when a zero-coupon of maturity T exists, the dynamic efficient frontier is a straight line the slope of which is explicitly characterized. All dynamic mean-variance efficient strategies are buy and hold combinations of two funds : the zero-coupon bond of maturity T and a continuously rebalanced portfolio. The explicit dynamic strategy defining the latter is derived in two particular cases. In these two cases, this second fund is independent of the considered horizon T.

BAJEUX-BESNAINOU, I. and PORTAIT, R. (1993). Dynamic Asset Allocation in a Mean-variance Framework. ESSEC Business School.